#1
Which of the following is a fixed cost?
Rent for the production facility
ExplanationFixed costs remain constant regardless of production levels.
#2
In activity-based costing (ABC), what is the primary focus when assigning overhead costs?
Activity cost drivers
ExplanationABC assigns overhead costs based on activities and their cost drivers.
#3
What is the purpose of a cost-volume-profit (CVP) analysis?
To determine the breakeven point
ExplanationCVP analysis helps identify the level of sales needed to cover costs and break even.
#4
What is the relationship between fixed costs and variable costs in the total cost equation?
Fixed costs remain constant regardless of changes in variable costs
ExplanationFixed costs do not change with production levels, unlike variable costs.
#5
What is the impact of a decrease in the sales price per unit on the break-even point?
The break-even point increases
ExplanationA lower sales price per unit increases the number of units needed to cover fixed costs, raising the break-even point.
#6
What is the formula for calculating contribution margin?
(Total Revenue - Variable Expenses) / Total Revenue
ExplanationContribution margin measures the profitability of individual units.
#7
In cost-volume-profit (CVP) analysis, what does the break-even point represent?
Total revenue equals total cost
ExplanationBreak-even point is where revenues cover all costs, resulting in no profit or loss.
#8
What is the role of the cost of capital in capital budgeting decisions?
It is used to calculate the net present value (NPV)
ExplanationCost of capital is a key factor in evaluating the profitability of long-term investments.
#9
What is the difference between absorption costing and variable costing?
Absorption costing treats fixed manufacturing costs as a period expense
ExplanationAbsorption costing allocates fixed manufacturing costs to products, while variable costing treats them as period expenses.
#10
What is the formula for calculating the contribution margin ratio?
(Total Revenue - Variable Expenses) / Total Revenue
ExplanationContribution margin ratio expresses the percentage of revenue that contributes to covering fixed costs.
#11
What is the significance of the cash payback period in capital budgeting?
It measures the time it takes for a project to generate positive cash flows
ExplanationCash payback period indicates how long it takes for a project to recoup its initial investment through positive cash flows.
#12
What is the concept of relevant costs in decision making?
Future costs that differ among alternatives
ExplanationRelevant costs guide decisions by considering future differences between alternatives.
#13
In a make-or-buy decision, what factors should be considered?
Opportunity costs
ExplanationOpportunity costs assess the benefits forgone by choosing one alternative over another.
#14
How does sensitivity analysis contribute to decision-making?
It identifies the impact of changes in assumptions on outcomes
ExplanationSensitivity analysis helps assess the effect of varying assumptions on decision outcomes.
#15
What is the role of the relevant range in cost behavior analysis?
It defines the range within which total costs remain constant
ExplanationThe relevant range is the production level where fixed and variable costs stay constant.
#16
How does the relevant cost concept differ from the sunk cost concept in decision-making?
Sunk costs are considered, while relevant costs are not
ExplanationSunk costs are historical and should not influence decisions, while relevant costs are future-oriented and impact choices.
#17
In decision-making, how does risk impact the choice between alternatives?
Decision-makers may prefer lower-risk alternatives
ExplanationRisk-averse decision-makers may opt for alternatives with lower uncertainty and risk.